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Hong Kong's Securities and Futures Commission (SFC) has enacted immediate new rules for cryptocurrency custody services, introducing rigorous security protocols and prohibiting smart contract implementations in cold wallet systems. The August 15 circular mandates certified hardware security modules, withdrawal whitelisting, and continuous security monitoring for licensed custodians.
The regulatory framework requires private key operations to occur in air-gapped environments with physical security controls. 【Multi-factor authentication】 becomes mandatory for accessing storage facilities, while transaction signing must occur offline. These standards aim to establish consistent security practices across Hong Kong's virtual asset custody industry.
——This marks Asia's first outright prohibition of smart contracts in cold wallet solutions——. The SFC cites reduced attack surfaces as justification, though prominent custody providers like BitGo and Safe currently utilize such technology. Industry experts note this could create friction with institutional clients accustomed to programmable wallet features.
Chen Wu of Ex.io exchange acknowledges the rules will elevate custody standards but warns compliance costs may disadvantage smaller players. The regulations arrive as Hong Kong positions itself as Asia's crypto hub, having recently approved spot ETFs and established stablecoin legislation. Interestingly, the territory now hosts 【18 licensed】 virtual asset service providers since expanding its exchange roster last year.
Blockchain security specialist Berndard Mueller supports the cautious approach but suggests outcome-based standards might better address smart contract risks. The policy reflects Hong Kong's strategy of combining market access with strict safeguards—a delicate equilibrium that could influence whether the territory surpasses competitors like Singapore in attracting institutional crypto investment.